Proposed electricity tariff:
Give incentives to limit peak demand
LIRNEasia is a regional think tank based in Sri Lanka and engaged in
infrastructure regulation and policy research across the Asia Pacific.
It is also engaged in research in Bangladesh, India and Sri Lanka on how
customer relationships can be better managed in the mobile telecom and
LIRNEasia Chairman Dr. Rohan Samarajiva said the immediate aim should
be to adopt a tariff structure that will provide incentives to limit
peak demand of electricity. If peak demand is lowered, the overall costs
of supplying electricity will be reduced. He made these submissions in
response to a letter sent to him by the Director General of Public
Utilities Commission of Sri Lanka (PUCSL), calling for comments on the
proposed electricity tariffs. Dr. Samarajiva in his letter has said
electricity generation to meet peak demand is costly due to the use of
expensive fuels such as diesel.
He said their calculations based on the assumption that the most
expensive generation is used in the merit order, indicate that the last
5 percent of peak demand is responsible for close to 50 percent of
costs. Even if the actual cost is half that, the importance of managing
demand to lower peak demand would still remain true. If peak demand is
lowered the overall costs of supplying electricity will be reduced.
Therefore, the immediate aim should be to adopt a tariff structure that
will provide incentives to limit peak demand.
To further reduce the demand, specifically the peak demand, PUCSL
should require CEB to carry out a campaign with specific messages
reminding consumers that peak time has started via television, radio and
SMS and provide information about which energy-consuming appliances
should be turned off for maximum reduction in demand at that particular
moment in time. Taking a step further, positive behavioural change can
be brought about by informing consumers about how their monthly bills
compare to other/similar households. A redesigned and more informative
electricity bill appears a necessity.
Bringing the proposed Norochcholai-II generators online by the
promised 2014 date is crucial. The estimated cost savings from this
plant are significant. After allowing for reasonable contributions to
settle the considerable liabilities of the CEB, the remainder should be
passed on to consumers in the form of rebates while maintaining the
principle of bringing tariffs closer to costs.
Dr. Samarajiva in his letter has stated that implementation of the
direction from the National Energy Policy and Strategies that prices
should reflect costs require that peak prices be different from off-peak
pricing because the costs of supplying at the peak and at off-peak
differ. This requires meters capable of applying different prices at
different time periods and mechanisms for giving actionable feedback to
Dr. Samarajiva said at present nearly 3.6 million households consume
less than 90 units so that they receive a significant subsidy on their
electricity bills. Though this subsidy is lower in amount, it would
continue even with the proposed tariff. Instead of subsidizing energy
for low-consuming households, the Government should be subsidizing